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Letter To Government
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To:
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Senator Jon Lindsey, Chair
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Texas Senate Intergovernmental Relations Committee
Texas Senate Logo
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P. O. Box 12068 - Capitol Station
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Austin, Texas 98711
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From:
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Elizabeth McMahon
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San Juan Capistrano, California 92693 |
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April 10, 2002
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Re: Letter to Texas Legislature Regarding HOA Insurance & HOA Lawsuit Industry - CAI
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Note to Rob Edwards - Committee Consultant:
In our phone conversation on April 3, you assured me that previous insurance information that we had sent had been included in the legislative spreadsheet of comments – apparently, it had been inadvertently left out. You also asked me to send you a cover letter on the insurance issue. As this is a wide ranging and complex issue, I will highlight some of the salient points here.
Dear Texas Legislators,
1. Many legislatures, due to intense lobbying both by insurance companies (particularly Chubb insurance) and CAI, have passed laws mandating that homeowner associations purchase various forms of insurance, including liability and D&O insurance.
Of course, the homeowners are the ones who pay for this mandatory insurance. What deeply galls homeowners is that this insurance is too often used as a sword against them. See the attached article - "Homeowner Association Insurance, A Sword, Not Shield".
2. CAI lawyers have milked these insurance policies to the fullest.
They manipulate situations between homeowners and their boards so that many homeowners are forced to file lawsuits against the association to protect their rights. CAI lawyers just love this because it triggers the association’s D&O policy. Using this considerable financial muscle, they attempt to strong arm the homeowners with depositions, motions, vast discovery requests – all designed to make the lawsuit cripplingly expensive for the homeowner. Combining this might with trickery, they often drive the homeowner to financial ruin, and resulting foreclosure.
3. Homeowners need protection from this CAI racket.
As the legislature requires them to purchase this insurance, the legislature should require some fundamental protections as well. One protection would be to require insurance companies to have a fiduciary obligation to the homeowner. This would help stamp out the common practice of insurance companies defending boards when the latter are clearly in the wrong.
4. The deeper reform, however, is to eliminate CAI from the entire homeowner association scene, for, without them, there would be far fewer problems in homeowner associations.
The following examples of the damage that CAI does is not intended to be exhaustive.
a). CAI has such a stranglehold on homeowner associations that insurance companies are forced to market their policies through CAI.
Chubb insurance, for example, includes an application form for membership in CAI along with its own insurance application form. An insurance company knows that it has little or no chance of securing the business unless it has the active backing and approval of CAI.
Furthermore, companies such as Chubb Insurance are forced to provide bribes to managers and board members in order to secure the business. Chubb is forced to piggyback coverage for the association’s management company onto the back of the association.
Chubb is forced to offer $100,000 in Accidental Death &Dismemberment coverage for each board and committee member for only $100 a year.
Both of these practices should be outlawed. Not only is bribery against sound public policy, but it raises the insurance premiums for homeowner association policies – and it is the homeowner who has to pay for this increase.
b). In Texas, Chubb has been forced to drop out of the homeowner association insurance market because it was losing too much money in the lawsuits brought by homeowners against Chubb and CAI.
CNA, the country's 5th largest insurance company, is negotiating with CAI to market its D&O policies through them.
c). In many areas of the country, especially in California, CAI lawyers have sued builders to such an extent, that many builders can no longer afford to buy insurance.
In South Orange County, California , an estimated 80% of all homeowner associations have been involved in some form of construction defect lawsuit.
One CAI lawyer openly brags that he has won over $450 million from builders in the last 15 years. Assuming that this lawyer collected 40% of this for his own fees, one can understand how he was able to donate $1million to former president, Bill Clinton.
The building industry in Texas should be no friend of CAI. If builders cannot build, homeowners cannot get homes. If defective homes are built, there should be a recovery mechanism to fix the problems without creating a multi-billion dollar lawsuit industry, that often siphons so much money, that the homeowner is not left with enough to repair his home.
d). For decades, CAI has been lying on a national level to the public, legislatures, the courts and media, that they a friend of the homeowner.
They have camouflaged proposed legislation as being pro-homeowner, whereas in reality it has legislated away homeowner's property rights, and turned the equity in their homes and their savings into lawyers' fees. For example, in California, they bribed legislators into passing a law that allowed homeowner association reserves to be used for attorney fees. CAI should be unmasked for what it really is, a selfish, grasping group of greedy lawyers.
e). For approximately the last 15 years, CAI lawyers have been training managers to be lawsuit chasers and lobbyists (AB555-California).
They train managers to be confrontational with homeowners in an effort to drive the homeowner to file a lawsuit. In California, CAI lawyers in effect created CACM (California Association of Community Managers) to lobby on behalf of CAI policies before the California legislature.
f). In the last few years, CAI has mounted an insidious campaign in such disparate states as Florida, California and Texas to be become the "official trainers" of board members in homeowner associations.
They have realized that one of the best ways to ensure that associations continue to be a cash cow for them, is to brainwash board members. Homeowners believe that this is analogous to allowing the tobacco industry to teach children about the health effects of smoking, or even worse, allowing terrorists to train airport security personnel. Homeowners believe that it is simply crazy to allow the very ones who stir up problems in homeowner associations, to be the "official trainers".
The accompanying material documents how CAI even advocates incarceration in mental institutions for homeowners who question their views and validity. (see attached article - "Land of Terror ")
g). CAI attempts to infiltrate members into government offices.
In California, they have tried to do this in the Insurance Commission, the Attorney General’s office, the Department of Real Estate, the courts, and law training publications.
They have sponsored laws that contain loopholes by which they can get unlimited lawyers’ fees for minor dues infractions. They have used fines to mine the bank accounts of homeowners, and ultimately to bankrupt them.
The overarching fact is that CAI has been a scourge on the land – and even its original founder admitted this. It has turned into a rack that seeks to grind out every last penny it can from homeowners.
Legislatures should be shutting such operations down. A home is the most important place for any citizen. Anything which threatens that should be relentlessly outlawed. Without a CAI, homeowner associations would be much better places to live, and legislatures would have much less work to do.
Sincerely
Elizabeth J. McMahon
Director
American Homeowners Resource Center
Enclosure:
Land of Terror - Story of A California Homeowner Association POW-MIA Mother Sent to A Mental Institution
Homeowner Association Insurance, A Sword, Not Shield-A report on Homeowner Association Directors & Officers Insurance
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